Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?

ABSTRACT

Asset prices plunged between 2007 and 2010 but then rebounded from 2010 to 2016. The most telling finding is that median wealth plummeted by 44 percent over years 2007 to 2010. The inequality of net worth, after almost two decades of little movement, went up sharply from 2007 to 2010, and relative indebtedness for the middle class expanded. The sharp fall in median net worth and the rise in overall wealth inequality over these years are largely traceable to the high leverage of middle class families and the high share of homes in their portfolio. Mean and median wealth rebounded from 2010 to 2016, by 17 and 28 percent, respectively. While mean wealth surpassed its previous peak in 2007, median wealth was still down by 34 percent. More than 100 percent of the recovery in both was due to a high return on wealth but this factor was offset by negative savings. Relative indebtedness continued to fall for the middle class from 2010 to 2016, and wealth inequality increased somewhat. The racial and ethnic disparity in wealth holdings widened considerably between 2007 and 2016, and the wealth of households under age 45 declined in relative terms.

1. Introduction

Relying on calculations from the Survey of Consumer Finances (SCF) from the Federal Reserve Board of Washington, as well as two other surveys, this paper documents trends in mean and median household net worth and net worth inequality over the 53 years from 1962 to 2016. Particular attention is devoted to how the middle class fared in terms of wealth developments over years 2007 to 2010, during one of the sharpest declines in stock and real estate prices, and over years 2010 to 2016 as asset prices recovered. The debt of the middle class exploded from 1983 to 2007, already creating a fragile middle class. The main question is whether their position deteriorated over the “Great Recession” and recovered after that.1 I also investigate what has happened to the inequality of household wealth over these years, particularly from 2007 to 2016.2